As the marijuana industry closely tracks congressional effort to pass a marijuana banking bill, a coalition of financial institutions has released a report offering best practices and standards for banks that are looking to start servicing cannabis businesses.
The report from the Cannabis Financial Industry Group (CFIG), published on Thursday, is meant to serve as a baseline for what banks and credits need to learn and do if they plan to work with state-legal marijuana markets under the umbrella of ongoing federal prohibition.
It’s designed to help banks and credit unions in the current policy environment, but CFIG says the advice would still be relevant even if Congress does pass legislation addressing the unique financial challenges of the industry such as the Secure and Fair Enforcement (SAFE) Banking Act, which is currently being held up in the Senate as Democrats and Republicans clash over a key section on regulatory oversight.
“Since the formal launch of CFIG earlier this year, our members have been actively engaged in congressional conversations as the SAFE Banking Act is moving through the Senate, shining a light on the high cost of compliance and extreme due diligence involved in existing cannabis banking programs,” CFIG Executive Director Saphira Galoob said in a press release.
.@CannabisFIgroup crafted this resource to help financial institutions better understand the strict compliance cannabis banking programs must adhere to presently as well as in the future even once #SAFEBanking is enacted or other federal cannabis policies shift.
— CFIG (@CannabisFIgroup) July 13, 2023
“The release of CFIG’s standards could not be more timely as this bipartisan bill will hopefully advance with the urgency the situation demands and as more states establish or expand their legal cannabis programs,” she said. “It is vital that lawmakers, regulators, and interested banks understand the processes in place to report suspicious activities and ongoing anti-money laundering efforts as the cannabis industry continues to adhere to strict self-regulations in the face of federal prohibition.”
There are six main considerations for banks as they contemplate working with state-licensed marijuana businesses, the report says.
First and foremost, it recommends studying up on the regulatory and compliance policies of each state that they’re looking to enter, as there are often significant differences in the rules that individual states have enacted around their programs. CFIG said that banks should also consider reaching out to state cannabis regulators to build a more comprehensive understanding of the relevant policies.
At that point, the coalition said, financial institutions should get to work developing a specific cannabis program, determining what kinds of businesses (e.g. hemp, CBD, commercial marijuana) they intend to service, the fee structure and the revenue and expense estimates.
The third piece of advice is for financial institutions to “adhere to internal approval processes when looking to establish a cannabis program as well as structuring an external approval process for accepting clients,” the report says. This is another stage in the process where CFIG said it may make sense to collaborate with marijuana regulators.
It is vital that lawmakers, regulators, and interested banks understand the processes in place to report suspicious activities and ongoing anti-money laundering efforts as the cannabis industry continues to adhere to strict self-regulations in the face of federal prohibition.
— CFIG (@CannabisFIgroup) July 13, 2023
Next, prior to launching the cannabis program, banks and credit unions should ensure that they have the resources to manage it. For example, they should have adequate staffing and processes in place for filing suspicious activity reports (SARs) and onboarding marijuana business clients.
When the financial institution has taken these steps and is ready to launch, it needs to hire and train staff to work with any software needed to carry out the program.
Finally, the standards guidance says that “the most important part of having a cannabis banking program is ensuring it remains transparent and complies with all relevant laws and regulations,” so financial institutions should ensuring timely compliance with SARs requirements, continuously monitor for any regulatory developments and adopt new processes as needed.
“As more financial institutions express interest in serving the state-legal cannabis industry as more programs come online, and as we look towards potential federal cannabis banking legislation and the Administration’s scheduling review shifting federal regulations pertaining to marijuana’s treatment, those of us who have been servicing this industry over the years want to make sure the importance of compliance and the cost of compliance are made crystal clear,” Alan Hyatt, chairman of CFIG and Shore United Bank, said.
“As emphasized in our banking standards, financial institutions must have a full understanding of an ever-shifting regulatory and industry environment, requiring a well-defined, well-structured, and well-documented program to adhere to the transparency, compliancy, and adaptability banking cannabis demands,” he said. “We look forward to continuing to be a resource for lawmakers, regulators, and our peers currently banking or looking to serve cannabis-related businesses as we continue to provide much-needed financial services to this growing industry—and we hope Congress will help us in this effort by finally passing the bipartisan SAFE Banking Act into law.”
While advocates and industry stakeholders have also been hopeful about the prospects of the SAFE Banking Act passing this Congress, that optimism has been tempered recently as the legislation awaits a markup in the Senate Banking Committee with times dwindling for action in the summer session.
Key Democratic senators have argued that it’s incumbent on Republican supporters to broader their coalition to ensure that the bill gets the 60 votes needed to clear the Senate, while GOP members say the measure would pass, if only Democrats would back off of efforts to amend a section on broad banking regulations. For what it’s worth, Senate Majority Leader Chuck Schumer (D-NY) said this week that the bill remains a legislative priority on his agenda.
In any case, the new report underscores a unique problem that’s long impacted the industry: the uncertainty and need for enhanced compliance while working with businesses that are legal at the state level but remain strictly prohibited under federal law.
Photo courtesy of Chris Wallis/Side Pocket Images.